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Livedoor's Horie arrested

ValueClick deal could be either crime or loophole

Prosecutors arrested Livedoor Co. President Takafumi Horie and three company executives Monday night on suspicion of securities law violations, investigative sources said.

Taken into custody along with the 33-year-old Internet tycoon were Livedoor Chief Financial Officer Ryoji Miyauchi, 38, Livedoor Director Fumito Okamoto, 38, and Livedoor Finance Co. President Osanari Nakamura, 38, the sources said.

Before he was taken to Tokyo Detention House, Horie was questioned by prosecutors for the first time earlier in the day. After the Tokyo stock market closed the day’s session, prosecutors called on Horie to turn himself in at their office.

They had already grilled Miyauchi, Okamoto and other Livedoor group officials.

Livedoor is being investigated for alleged violations of the Securities and Exchange Law.

Livedoor Marketing Co., a Livedoor affiliate at the time known as ValueClick Japan Inc., is suspected of spreading false corporate buyout information on a takeover of a publisher and inflating earnings results in 2004 in a bid to boost its and the parent company’s share prices.

The prosecutors have been focusing on the questionable means by which Money Life, the publisher, was acquired in October 2004 by ValueClick Japan.

They believe Livedoor, and not the subsidiary, took the lead in negotiating the takeover.

Miyauchi is believed to have evaluated the assets of Money Life, before ValueClick Japan acquired it through a stock swap, the sources said.

The sources said Miyauchi owned up to most of Livedoor’s questionable funding methods as alleged by the prosecutors. But he said he did not think such activities were in violation of the Securities and Exchange Law, according to the sources.

Miyauchi also claimed Horie was not involved in the dubious transactions, they said.

Livedoor approached Money Life around March 2004 and quickly reached an agreement to acquire the publisher, after which Miyauchi visited Money Life and put the value of the publisher’s assets at some 42 million yen, the sources said.

Around May the same year, however, Livedoor successfully persuaded Money Life to allow itself to be purchased by an investment fund then under Livedoor’s control, instead of by Livedoor itself, the sources said.

The fund acquired all the outstanding shares of Money Life in June that year, followed by ValueClick’s buyout of the publisher.

ValueClick is suspected of spreading false corporate buyout information in October 2004, when it announced it would turn Money Life into a wholly owned subsidiary through a stock swap. It is also suspected of inflating profit figures in its financial statement released in November the same year.

The prosecutors believe ValueClick put out the false buyout information and inflated its earning results in a bid to boost its stock price. Such practices violate the Securities and Exchange Law.

An executive at Money Life defended the buyout, saying it felt natural to involve the investment fund in the deal to effect the buyout speedily.

Earlier in the day, prosecutors questioned more Livedoor officials, including a certified tax accountant, as well as officials at a Yokohama-based auditing firm over the Livedoor group’s alleged financial malfeasance.

The tax accountant, who has been serving in an executive officer capacity at Livedoor, has worked with Miyauchi, taking charge of the group’s accounting operations, the sources said.

Others grilled by prosecutors include officials at Yokohama firm Koyo & Co., which was in charge of auditing a series of corporate acquisition deals by the fast-growing Internet and financial services company, they said.

On Jan. 16, the Tokyo District Public Prosecutors Office and the Securities and Exchange Surveillance Commission raided Livedoor’s head office in Roppongi Hills, a business and commercial complex in Tokyo, and other locations, including Horie’s apartment in Roppongi Hills.

Four stock splits

Livedoor Co. split its stock four times since 2001 to boost its share price, before one of its subsidiaries — now a subject of alleged securities law violations — followed suit, sources said.

Livedoor is believed to have let the subsidiary use the parent company’s method after finding it difficult to raise its own stock price further, according to the sources.

Prosecutors are probing the Livedoor group’s repeated merger and acquisition deals and following or preceding stock splits, as the deals created suspicious money flows involving the group and the companies it was buying, the sources said.

The Internet services company is alleged to have raised several billion yen in profit through the scheme.

The Tokyo District Public Prosecutor’s Office alleged that the advertising subsidiary, Livedoor Marketing Co., misled the stock market by spreading false information over its M&A deal in order to raise its share price in 2004 when it was known as ValueClick Japan Inc.

Before that, however, Livedoor split its stock four times, including an unusually large 100-for-one split in 2003, with the market capitalization of Livedoor rapidly increasing to a peak of about 930 billion yen in January 2004.

Between November 2003 and March 2004, Livedoor announced it had bought five companies. However, the share splits made the price unstable and finally sent it lower in 2004, with the original number of shares increasing 30,000 times.

Later in 2004, Livedoor Marketing used the same method, announcing its acquisition of a publishing company and a share split that preceded a big runup in its share price.

Shares hit new low

The stock price of scandal-plagued Livedoor Co. hit an all-time low of 256 yen on Monday amid the widening criminal investigation into its merger and acquisition activities.

Livedoor stock fetched an ask-only 256 yen during the day as the number of sell orders for Livedoor shares topped buy orders by a huge margin. But some deals were struck at this level after available buy orders were allocated among sellers at the end of the session.

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